Despite this year’s government shutdown, 2018 will be a good year for robust and creative federal contractors, according to two experts.
In mid-January, WashingtonExec hosted Bob Kipps, managing director of KippsDeSanto & Co., and Kevin Brancato, Bloomberg Government’s director of government contracts research, who discussed the increased M&A activity and the anticipated market growth in the federal IT, defense, intelligence and civilian sectors.
According to Kipps, spending will spike in the Defense Department, intelligence community and for next-generation IT requirements across much of the federal government. Business focus, innovation and differentiation continue to be critical for small and mid-tier businesses looking to sell. Buyers, both public and privately held, actively seek to acquire businesses that have those cutting-edge, differentiated capabilities and/or have key penetration within sought-after government agencies.
Compared to previous cycles, the current universe of interested buyers is both extremely wide and fairly deep, Kipps said. Notwithstanding the positive market conditions, founder-driven businesses should continue to expect intense due diligence scrutiny from buyers. The market will resume its high pace of consolidation and merger efforts of 2017, as the space is in the middle of an up-cycle, which could fuel M&A activity in 2018 to levels not seen since 2012.
Brancato gave attendees an overview of how policy gridlock and government shutdown uncertainty impact the general growth of the federal market. Overall, the space continues to up spending within the defense and civilian sectors. From 2016 to 2017, federal defense expenditure increased by 4.2 percent, IT grew by 2.7 percent and nondefense rose by 1.4 percent. The 3-year trend of designating a larger share of IT, professional services, and facilities and construction awards to small business competition will continue.
Governmentwide Acquisition Contracts will also grow in popularity within procurement shops, including Alliant, CIO-SP3 and SEWP. Departments of Homeland Security and Veterans Affairs requirements will lead in civilian business opportunities for contractors. DOD will continue to focus on cybersecurity, mobile solutions and cloud computing capabilities.